The British Pound did initially show signs of strength during the trading session, and while we are still positive, it is obvious to me that we are looking at a pretty significant barrier above that we will have to deal with in the form of 216 Yen.
This will be influenced by the Dollar against the Yen as well, as the US Dollar has recently seen intervention near the 160 Yen level. We are getting close to these major areas that the Bank of Japan, and where it is trying to keep the Japanese Yen somewhat viable. This is a situation where they have to defend, but only can to a point at this juncture.
Analyzing Interest Rate Differentials and Support Levels
But recently we've gotten inflation numbers coming out of Japan that show interest, intervening may be slipping a bit, mainly due to the fact that it looks like the inflation numbers in Japan are starting to come down, and that of course helped.
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That being said, the British Pound I do prefer over the Japanese Yen due to the wide interest rate differential. I do think that the 214 Yen level is an area that will continue to be supportive, especially with the 50-day EMA sitting just below there.
I've got no interest whatsoever in trying to short this pair. I do not pay the swap, and ultimately, I think this is a market that, given enough time, we will have buyers coming in to take advantage of cheap British Pounds anytime they occur in this market, as the Yen is so toxic at this point.
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